Case Update: No Oppression Remedy against Chairperson of General Meeting

The High Court in Safari Alliance Sdn Bhd v Tan Lee Chin and others (grounds of judgment dated 25 August 2021) dealt with how a shareholder cannot maintain an oppression action against rulings made by the Chairperson at a general meeting. Such rulings do not amount to “affairs of the company” for oppression.

Summary of Decision and Significance

Decision by: Wan Muhammad Amin bin Wan Yahya JC

This decision involved a shareholder filing an oppression action to challenge the rulings made by the chairperson at the annual general meeting (AGM).

The oppression remedy is found in section 346 of the Companies Act 2016 (CA 2016) and previously under section 181 of the Companies Act 1965 (CA 1965). Essentially, the remedy allows any member of the company to apply to the Court for certain relief. This is where, among others, “the affairs of the company are being conducted” or “the powers of the directors are being exercised” in an oppressive manner or in disregard of that member’s interests.

This decision confirms that the chairperson’s rulings and acts at the general meeting do not amount to such “affairs of the company” or “powers of the directors” to ground an oppression action.

The decision is significant in setting out the duties and powers of the chairperson of a general meeting. Additionally, this case also considered the importance of clearly nominating a proxy within the proxy form. The proxy form is an extension of the shareholder’s important right to vote at a general meeting.

Background Facts

The Plaintiff is a substantial shareholder of the public-listed Tiger Synergy Berhad (Tiger Synergy), holding 10.92% interest in the company.

The 1st Defendant is a director of Tiger Synergy and she was the Chairperson at that AGM.

The 2nd to 4th Defendants were re-elected or re-appointed as directors at the AGM. The 5th to 7th Defendants are directors of Tiger Synergy.

Facts Leading to the AGM

On 15 May 2020, Tiger Synergy issued its Notice of the AGM to hold its AGM on 9 June 2020.

The Plaintiff put in a request to Tiger Synergy to nominate 6 persons as candidates for directors.

On 29 May 2020, Tiger Synergy announced that new resolutions will be added to the AGM to consider the Plaintiff’s nomination of candidates for directors.

Events at the AGM

On 9 June 2020, the AGM commenced. The 1st Defendant announced that she was the Chairperson for the meeting by her being the Deputy Chairperson of the Board of Directors.

The Chairperson then announced that 5 proxy forms would be rejected (totalling 156,433,800 ordinary shares or around 10.68% of the total voting rights of Tiger Synergy). The Chairperson explained that the rejected proxy forms were defective as the proxy forms did not name any individuals or the Chairperson as proxy. As elaborated below, the shareholders who submitted the rejected proxy forms were not made parties to the Plaintiff’s eventual legal action.

The resolutions relating to the re-election of the 2nd and 3rd Defendant directors and the retention of the 4th Defendant director as an independent director were all carried. The Plaintiff’s votes were taken into account for these resolutions.

The Chairperson then announced the withdrawal of the proposed resolutions no. 6 to 11 which concerned the Plaintiff’s nomination of the 6 individuals as directors. The Chairperson explained that she had obtained legal advice and exercised her discretion as the chairperson to withdraw these proposed resolutions. The proposed resolutions did not comply with section 201 of the CA 2016 that required the person’s consent in writing and declaration before appointment as a director.

Filing of the Oppression Action

Two weeks later, on 23 June 2020, the Plaintiff filed a legal action based on the oppression remedy under section 346 of the CA 2016.

Essentially, the oppression action sought to first, invalidate Chairperson’s rulings made at the AGM. In particular, the rulings concerning the rejection of the 5 proxy forms and the withdrawal of the proposed resolutions on the Plaintiff’s proposed 6 additional directors.

Second, to invalidate the results of the AGM and to substitute it with an outcome which the Plaintiff claimed to be the inevitable outcome of the AGM.

Decision

The Court considered the issues in two parts:

Issue 1: On the Plaintiff’s legal standing to bring an oppression action – whether a chairperson’s ruling falls within the oppression remedy.

Issue 2: The validity of the Chairperson’s rulings made on the rejection of the proxy forms and the withdrawal of the proposed resolutions.

Issue 1: Legal Standing – Whether a Chairperson’s Ruling Falls within the Oppression Remedy

In reading the words used in the oppression remedy under section 346 of the CA 2016, the Court considered whether:

  1. The Chairperson’s rulings come under the “affairs of the company” under section 346(1) of the CA 2016; and
  2. The Chairperson’s rulings come under the exercise of the “powers of the directors” under section 346(1) of the CA 2016.

“Powers of the Directors”

The Court held that the Chairperson’s rulings were made in her capacity as chairperson of the AGM. While the 1st Defendant was also a director of Tiger Synergy, her rulings as Chairperson cannot be construed as a decision of Tiger Synergy’s Board of directors. The powers of the directors of a company are exercised as a Board.

“Affairs of the Company”

The Court agreed that the definition of “affairs of the company” should be given a wide meaning. However, it cannot be without limitation. The Court held that the acts complained of must relate to the affairs of the company itself or the exercise of powers by the directors, not that of an individual.

As the chairperson of the AGM, the 1st Defendant’s position is different from that of a director. Her conduct at the AGM cannot be equated with that a director of Tiger Synergy or construed as the exercise of the powers of the directors of Tiger Synergy within the meaning of section 346 of the CA 2016.

The Court next analysed the role of the chairperson of the meeting and the duties owed.

The Role of the Chairperson of the Meeting

The 1st Defendant became Chairperson of the AGM by virtue of Tiger Synergy’s constitution where the Chairperson of the Board shall preside at every general meeting. If he is unwilling to act as Chairperson, the Deputy Chairperson shall be the Chairperson of the general meeting.

The 1st Defendant, as the deputy chairperson of the Board, became the Chairperson of the AGM by default based on Tiger Synergy’s constitution.

Therefore, it could be said that the 1st Defendant became the Chairperson of the AGM by consent of the members, which includes the Plaintiff. All the shareholders of Tiger Synergy are bound by the constitution.

The 1st Defendant’s appointment as Chairperson of the AGM had nothing to do with the directors nor was it their decision for her to chair the AGM.

The Court agreed that the Chairperson’s rulings at the AGM were within the purview of her powers and duties as Chairperson of the AGM and were within the powers conferred on her as chairperson of a general meeting under the constitution.

Therefore, the Court held that the Chairperson’s rulings at the AGM cannot fall within the meaning of “affairs of the company” or “powers of the directors” under section 346 of the CA 2016.

Plaintiff Had No Interest in Rights of Other Members – The Rejection of the Proxy Forms

The Court noted that the 5 shareholders with the rejected proxy forms were not parties to the legal action. This raised the issue whether the Plaintiff could raise a complaint on behalf of other shareholders. More so, whether the Plaintiff could raise a complaint when the act complained of does not affect the Plaintiff in its capacity as a member of Tiger Synergy.

The Court ruled that since the Chairperson’s ruling on the rejection of the proxy forms affected the 5 shareholders, they should raise the complaint. It is not for the Plaintiff to do so. The issue of their proxy votes did not affect the Plaintiff’s own right to vote.

Therefore, the Court found that the non-joinder of the 5 shareholders of the rejected proxy forms was fatal to the Plaintiff’s complaint on the Chairperson’s ruling to reject the forms.

The Court cannot be expected to delve into or examine a complaint in an oppression action when the aggrieved party is not before the Court.

Issue 2: Correctness of the Chairperson’s Rulings

For completeness, the Court also proceeded to assess the other issues regarding the correctness of the Chairperson’s rulings at the AGM.

Rejection of Proxy Form Ruling

The Chairperson had rejected the 5 proxy forms on the basis that no proxy was properly named or identified in the forms.

An example of one of the rejected proxy forms is set out below:

The Chairperson rejected the proxy form as:

  • No proxy was specifically named under the column “Proxy 1” or “Proxy 2”.
  • The “Chairman of the Meeting” was not named or identified as a proxy.
  • The proviso below the table on “or failing him/her, the CHAIRMAN OF THE MEETING” is not activated and cannot be applied unless an individual is first named under the column “Proxy 1” or “Proxy 2”. This is because the proviso is merely to safeguard the shareholder’s position in the event the nominated proxy does not attend the AGM.
  • As no proxy was named under the column “Proxy 1” or “Proxy 2”, the words “or failing him/her” must either be struck out or the words “CHAIRMAN OF THE MEETING” circulated to indicate the Chairperson’s appointment was made. Since the shareholder had not done this, the proviso was not activated.

In examining this issue on the proxy form, the Court emphasised that a shareholder’s right to vote is arguably his most important right as a shareholder or member of a company. Hence, when that right is to be exercised by way of a proxy, exceptional care must be taken to ensure that the appointment of the proxy was done properly and the proxy clearly identified.

A proxy will have to vote according to the wishes of the shareholder who appointed him. The proxy is an agent of the said shareholder to whom fiduciary duties are owed to.

With such an important duty placed upon the proxy, it is equally important that the proxy be identified with clarity. That is precisely why a company’s proxy form must be properly executed.

The Plaintiff claimed that as those shareholders had not named any proxy, the Chairperson of the AGM would be then appointed as proxy.

The Court disagreed with this. It is clear from the proxy form that the proviso would only apply in the absence of the specifically named proxy which is why the words “or failing him/her” appear in the proviso.

The 1st Defendant, as Chairperson of the AGM, was entitled to consider the validity of the proxy forms and make the ruling to reject the proxy forms. The task of the meeting’s chairperson is to consider the regularity and validity of instruments of proxy.

Withdrawal of the Proposed Resolutions on the Appointment of 6 Directors

Before any individual can be appointed as a director, he must first make a declaration that he is not disqualified under all the specific disqualification instances set out in section 198 of the CA 2016.

The Court noted that in the declarations by the proposed 6 candidates, none had made declarations that they had not been convicted of the offences listed in section 198 of the CA 2016 and/or that they had not been disqualified under section 199 of the CA 2016.

The Plaintiff did not deny that the proposed candidates did not make those required declarations. Instead, the Plaintiff contended that Tiger Synergy’s Board had decided that the proposed resolutions for the 6 candidates could be voted on, and had circulated the AGM Notice and the proxy forms for voting on those proposed resolutions. Therefore, Tiger Synergy was estopped from denying the validity of those proposed resolutions.

The Court held that Tiger Synergy had a mandatory duty to give notice of the proposed resolution (see section 323(2) of the CA 2017). However, that cannot be an acceptance or acquiescence by the Tiger Synergy Board on the validity of the proposed resolutions. In any event, estoppel could not be invoked against the operation of a statute or where there is illegality.

When confronted with the non-compliance of sections 198 and 199 of the CA 2016, the 1st Defendant, as Chairperson, was right to have withdrawn those proposed resolutions.

The Court dismissed the oppression action with costs.

Comments

This is a significant case in confirming that the acts of any chairperson at a general meeting would not fall within conduct that can be subject to an oppression action. An aggrieved shareholder may very well have other reliefs or may decide to launch other actions if there have been any breaches or invalid acts by the chairperson.

Nonetheless, in this case, the Court had also decided on the validity of the chairperson’s actions. The case is useful in explaining the role and duties of the chairperson of a general meeting, the procedural importance of proxy forms, and the need to ensure strict compliance when nominating and appointing directors.

To read more on shareholder remedies in Malaysia:

 

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